Question 1

Inventory is a capital asset.

Accepted Answer

Inventory is considered a current asset, not a capital asset, because it is intended to be sold within a year or within the business's normal operating cycle.

Question 2

In addition to the individual income tax, individuals may be required to pay taxes imposed on tax bases other than individual taxable income.

Accepted Answer

Examples of taxes on tax bases other than individual taxable income include sales tax, property tax, and estate tax.

Question 3

From AGI deductions are commonly referred to as deductions "below the line."

Accepted Answer

AGI deductions are commonly referred to as deductions "below the line" because they are taken after the calculation of Adjusted Gross Income (AGI), which appears on the last line of the first page of Form 1040.

Question 4

Itemized deductions and the standard deduction are deductions from AGI but the deduction for qualified business income is a deduction for AGI.

Accepted Answer

The deduction for qualified business income is a deduction from AGI, not for AGI. Both itemized deductions and the standard deduction are also deductions from AGI.

Question 5

The standard deduction amount varies by filing status.

Accepted Answer

The standard deduction amount is different for each filing status, so it varies.

Question 6

Taxpayers need not include an income item in gross income unless there is a specific tax provision requiring the taxpayer to include the income item in gross income.

Accepted Answer

Taxpayers are generally required to include all income in gross income unless there is a specific exclusion or deferral provision in the tax code.

Question 7

Tax credits are generally more valuable than tax deductions because tax credits reduce a taxpayer's gross tax liability dollar for dollar while tax deductions do not.

Accepted Answer

Tax credits directly reduce a taxpayer's tax liability, while tax deductions reduce taxable income which indirectly reduces the tax liability. Therefore, tax credits are generally more valuable as they provide a greater tax savings.

Question 8

Taxpayers are generally allowed to claim deductions for expenditures unless a specific tax provision indicates the expenditure is not deductible.

Accepted Answer

The answer of Taxpayers are generally allowed to claim deductions...

Question 9

The character of income is a factor in determining the rate at which the income is taxed.

Accepted Answer

This is true. Different kinds of income are subject to different tax rates, deductions, and exemptions. For example, wages and salaries are taxed at a higher rate than long-term capital gains, and certain types of income (such as municipal bond interest) may be tax-free altogether.

Question 10

Taxpayers may prepay their tax liability through withholdings and through estimated tax payments.

Accepted Answer

Taxpayers have the option to prepay their tax liability through either or both of these methods.

Question 11

The standard deduction amount for married filing separately taxpayers (MFS)is less than the standard deduction amount for married filing jointly taxpayers.

Accepted Answer

The standard deduction amount for MFS taxpayers is $12,550 in 2021, whereas the standard deduction amount for married filing jointly taxpayers is $25,100. Therefore, the standard deduction amount for MFS taxpayers is less than the standard deduction amount for married filing jointly taxpayers.

Question 12

A personal automobile is a capital asset.

Accepted Answer

A personal automobile is considered a capital asset as it is used for personal or business purposes and has a useful life span of more than one year.

Question 13

Taxpayers are allowed to claim a child tax credit for their qualifying children and certain other qualifying dependents.

Accepted Answer

Taxpayers can claim a child tax credit for their qualifying children and certain other qualifying dependents, as long as they meet certain eligibility requirements.

Question 14

Certain types of income are taxed at a lower rate than ordinary income.

Accepted Answer

Certain types of income such as long-term capital gains and qualified dividends are taxed at a lower rate than ordinary income.

Question 15

For AGI deductions are commonly referred to as deductions "above the line."

Accepted Answer

AGI deductions are referred to as deductions "above the line" because they are subtracted from gross income to arrive at adjusted gross income (AGI). These deductions include items such as contributions to retirement accounts, alimony payments, and student loan interest.

Question 16

Tax credits reduce taxable income dollar for dollar.

Accepted Answer

Tax credits reduce the amount of tax owed dollar for dollar, not taxable income. Tax deductions reduce taxable income.

Question 17

From AGI deductions are generally more valuable to taxpayers than for AGI deductions.

Accepted Answer

For AGI deductions reduce both adjusted gross income (AGI) and taxable income, potentially lowering the taxpayer's tax bracket, while from AGI deductions (itemized or standard deductions) only reduce taxable income. For AGI deductions can also affect eligibility for various tax credits and benefits, which are often phased out at higher AGIs.

Question 18

For AGI deductions are commonly referred to as deductions "below the line."

Accepted Answer

AGI deductions are commonly referred to as deductions "above the line," meaning they are subtracted from gross income to arrive at the Adjusted Gross Income (AGI).

Question 19

Qualified dividends are taxed at the same rate as ordinary income.

Accepted Answer

Qualified dividends are taxed at lower rates than ordinary income. The tax rate on qualified dividends ranges from 0% to 20%, depending on the taxpayer's income level.

Question 20

Taxpayers are allowed to deduct a specific amount for each of their dependents.

Accepted Answer

The answer of Taxpayers are allowed to deduct a specific...

Quiz 4: Individual Income Tax Overview, Dependents, and Filing Status